Brummer Multi-Strategy monthly commentary December 2022
Brummer Multi-Strategy (BMS) SEK and Brummer Multi-Strategy 2xL (BMS 2xL) SEK posted an estimated return of 1.2 and 2.1 per cent respectively in December (1.4 and 2.4 per cent for the corresponding USD classes).
MARKETS
Equity markets declined during December, with both the S&P 500 and Nasdaq indices recording their worst annual returns since 2008. Despite easing inflation numbers, central banks remained hawkish in their rhetoric with Christine Lagarde of the ECB signalling that further hikes will be necessary to get inflation under control. In the US, Fed chairman Jerome Powell delivered a similar message as the central bank raised rates, albeit at a slower pace, leading markets to price in a higher endpoint for the Fed’s policy rate at just above 5 per cent in Q2 2023. Stock markets in Asia also had a difficult month as the Bank of Japan surprised markets by announcing it would widen the band in which 10-year government bonds trade while in China the government continued its Covid reopening despite an increasing spread of the virus. Fixed income markets saw declines in government bond prices, with yields edging higher in both Europe and the US. In commodity markets, oil prices seesawed following uncertainty about the consequences of a price cap on Russian oil and how China's reversed covid strategy will affect demand. In currency markets, the Japanese yen rose against the US dollar following Bank of Japan’s change in its yield control policy, the US dollar weakened against a basket of currencies while the euro strengthened.
STRATEGIES WITHIN BRUMMER MULTI-STRATEGY
BMS finished the year with positive performance in December. The month’s largest contribution came from the long/short equity teams, realising solid gains across US TMT, global industrials and European financials sectors. Long alpha in the banking and insurance sectors as well as short alpha in capital goods and transportation sectors were particularly strong. Systematic trend following also performed well during the month, profiting across the majority of asset classes. Among the most fruitful trades were short positions in power and short positions in government bonds in Europe and emerging markets, which outpaced some losses in credits. Systematic macro profited primarily from relative value positioning in rates and commodities. Systematic equity ended the month down with alpha losses and was the month largest, yet marginal, detractor to BMS’s performance.
As of January 1st, BMS’s portfolio managers increased the allocation to long/short equity, decreased to systematic trend and redeemed in full from systematic equity.
